Capital Series: James Lindsay, Builders Vision
This episode is part of our Capital Series hosted by MCJ partner, Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.
James Lindsay is a principal on the Builders Initiative Investment Team, which is part of Builders Vision.
In late 2021, Walmart heir Lukas Walton publicly launched Builders Vision, a platform that combines philanthropy, direct investment, and advocacy in four key areas: food, ocean health, energy transition, and community building. At Builders Initiative, James leads an investment vehicle focused on the energy transition and climate justice, in addition to co-leading a key effort to promote innovative funding in the ocean space. Both platforms attempt to provide innovative solutions and invest in emerging venture capital and private equity fund managers, accelerators, and emerging startups.
We have a great discussion in this episode about James' journey, the important work that they're doing at Builders Vision, and most importantly, how to get other significant family offices to pursue similar work, putting impact front and center.
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Episode recorded on Jul 3, 2023 (Published Aug 2, 2023)
In this episode, we cover:
[02:13]: An overview of Builders Vision (BV), its mission, and origin story
[07:18]: Collaboration among BV's teams and programs
[08:25]: BV’s involvement in the 1000 Ocean Startups coalition tracking ocean sector investments
[11:29]: How BV is distinct among family offices
[13:10]: James’ transition from oil and gas to impact investing
[18:04]: Overlaps and distinctions between BV and Seed 2 Growth (S2G)
[24:18]: BV's core fund size preference
[26:33]: How the company measures impact and thinks about returns
[32:23]: BV's distinct strategies for oceans (opportunistic) and energy (thesis-driven)
[36:33]: Accelerating adoption of new technologies in hard-to-abate sectors
[39:35]: Potential for market-rate investors with creative structuring
[44:08]: Barriers holding back other ultra-wealthy families from impact investing, including generational divides and reluctance towards hard tech
[47:53]: BV's approach to the built environment, with a focus on retrofits and microgrid improvements
[50:50]: BV’s involvement in policy discussions and the need for clearer federal and regional policies
[54:35]: The importance of investing in harder tech solutions to accelerate the transition
[55:40]: Parting words: Builders Vision is hiring!
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Jason Jacobs (00:00):
Today on the MCJ Capital Series, our guest is James Lindsay, who's a principal on the Builders Initiative Investment Team, which is part of Builders Vision. In late 2021, Walmart heir Lukas Walton publicly launched Builders Vision, which is a platform that combines philanthropy, direct investment, and advocacy in four key areas, food, ocean health, energy transition, and community building. At Builders Initiative James leads an investment vehicle focused on the energy transition and climate justice, in addition to co-leading a key effort to promote innovative funding in the ocean space. Both platforms attempt to provide innovative solutions and invest in emerging venture capital and private equity fund managers, accelerators, and emerging startups. We have a great discussion in this episode about James' journey, the important work that they're doing at Builders Vision, and most importantly, how to get other significant family offices to be doing similar work where they put impact front and center.
Cody Simms (01:01):
I'm Cody Sims.
Yin Lu (01:01):
I'm Yin Liu.
Jason Jacobs (01:04):
And I'm Jason Jacobs, and welcome to My Climate Journey.
Yin Lu (01:10):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (01:28):
And with that, James Lindsay, welcome to the show.
James Lindsay (01:31):
Thanks for having me, Jason.
Jason Jacobs (01:32):
Thanks for coming. It's funny, I've been doing this for almost five years now, and I've heard so much about Builders Vision, and you guys have your tentacles into so many of the most important things happening in the space, yet it was only a few weeks or a month ago that we first got connected, which is shocking. And I'm just so thrilled both that we got connected and that we are starting to find more ways to collaborate, but also that you're making the time to come on the show. Long time coming.
James Lindsay (02:03):
Yeah, no, it's been my pleasure to get to know you in the past couple of weeks, so excited to be here.
Jason Jacobs (02:07):
Great. Well, for starters, talk a bit about Builders Vision and the work that you do?
James Lindsay (02:13):
Builders Vision is an impact platform founded by Lukas Walton. An impact platform is really how we're branding our version of what a family office should be. Our principal, Lukas, got into his capital pretty young, so he always knew that he had this wealth coming pretty early on and he wanted to rethink how the normal tools of a family office could work together for more good. He didn't want to end up with one of those classic the lions share of your portfolio sitting with an outside investment office and then you're doling out your philanthropic goals for capital for good, but meanwhile your big portfolios doing a lot of what you're doing, just invested in whatever is on the street.
(02:49):
So, he's created a platform where our asset management team works closely with our grant team and our direct investment team and vice versa to create a flywheel effect, which is a cute way of saying, "We want to use every dollar going out the door in a collaborative way." And this sounds relatively fancy, in reality it's a lot easier to implement than I think we all thought it would be. We've created a lot of different tools and portfolios that are designed to bridge across these different teams to allow us to utilize whatever type of capital we need for the opportunity ahead of us. To date we've been pretty active with S2G, Seed 2 Growth, which is a food and ag venture fund. They started in about 10 years ago and have been pretty active in that landscape and have now expanded to having a seafood and ocean fund, as well as a clean energy focused fund.
(03:36):
We've built out a pretty aggressive grant-making team that deploys philanthropic dollars within a few focus areas of ours. But everything we do is designed to address planetary health. So, how can we advance clean energy initiatives? How can we advance food and ag, and of course, how can we think about making the oceans a more healthy place? And so within that, I sit underneath our endowment, which is about 1.6 billion AUM, and we actually think we're one of the largest endowments that's as focused on impact. We're about 90% deployed in what we call mission aligned investments. This can be investments such as SJF Ventures, who've been a pretty established social impact investor for a few years. Also, real asset groups like Ember Infrastructure, who's doing everything from energy as a service type infrastructure projects to much more classic infrastructure plays.
(04:26):
But in addition to that, I spend most of my time working on two thematic portfolios. One is an ocean health vehicle that's half fund to funds, half direct investing, which has a really simple goal. We're trying to catalyze the private market within the ocean ecosystem. Five years ago, if you found a VC who even knew what an ocean-related investment looked like, I would have been shocked. And when you think about the size of the problems in climate change that the oceans face, it's just completely underserved. We had a really simple gold portfolio, let's catalyze private capital to come in via creating more and more venture tools. And then we've also been directly investing in key sub-sectors of the entire ocean ecosystem. And that can take the form of aquaculture, it can take the form of seaweed production, ocean carbon dioxide removal, and of course, lots of underpinning data that goes alongside all of those tools.
(05:18):
In addition to that, I have a clean energy focused vehicle that's focused on transformational technologies in the energy transition. So, how can we get the hard to abate sectors ahead faster? And we also take a deep look at climate justice out of that portfolio as well. So, how can we ensure that various populations and communities that have been overlooked in the transition and may not have the capital or access to capital to get their hands on clean electrons can get there?
Jason Jacobs (05:44):
Great. It'd be helpful, James to understand a bit about the origin story and some of the lessons learned along the way from a BV standpoint. And then same question in terms of your journey and how you came to do the work that you do?
James Lindsay (06:01):
Yeah, so Builders came out to the world, I think two years ago, and before that we were a pretty quiet group intentionally. There was S2G, as I mentioned, who was publicly facing, and the rest of us were intentionally relatively confidential about who we are. It was a slow process to become much more out there in the limelight. We realized we wanted to be a demonstration point to the world, so hopefully other high-net-worth family offices or various asset management platforms could mimic us, because we don't want to be the only ones thinking about our capital in this way. We think there's just too much money sitting there in traditional investment vehicles that should be thinking more about impact.
(06:39):
Getting into our lessons learned, it's been a very live feedback loop I've got to say. I joined the office about three and a half years ago. We were just getting all of our various teams ideated on a whiteboard. There was no real line of sight on where we would stop going. It seems like every six months we are completely changing how fast and how aggressive we want to be within our various focus areas. So, lesson learned are still a little hard and I think we're still trying to figure out what are we going to become in the next five to 10 years. We're meant to be almost experimental in how we view what we're doing. I think what's been the most educational thing to share out is how we collaborate.
(07:18):
All of our teams, like I mentioned in the beginning, work together. For our ocean platforms, our S2G ocean and seafood team and our grant-making ocean team and the program that I focus on, all work together. We sit on each other's ICs, we share deal flow for the first four or five phone calls until we figure out who's the right home for this internally. And it's been a little bit slow, but it's really become a powerful tool. And I think we're actually proving how embedded we need to be within each other's activities. When I see more of what's happening from our grant program and where the learning and research is going, it can just be incredibly valuable when I'm working with my startups, just seeing what's around the corner, who can I connect you with, whether it's to get a SBIR grant.
(08:01):
We know some of the people that have really helped pioneer how that program works, so it could be very beneficial for them when we have great access to SDGs platform where they do a lot of corporate development, it can be really helpful for plugging in our companies towards these bigger, bigger names, whether that's a Cargill or another top industry buyer. It can be very helpful at the early stages. But probably most importantly, it allows us to be really flexible with various coalitions. And a really good example of this is a network called the 1000 Ocean Startups, which has pretty much every venture investor in the ocean sector involved. We've got the World Economic Forum now helping act as a secretariat, and it's really a interesting model. We're trying to make sure that everyone starts talking about oceans the same way. We can't have 500 impact KPIs out there for the entire sector if we want to really address problems together. So, we're creating a robust impact scoring framework.
(08:55):
We're also providing access to technical resources. If you really want to challenge like, "Well, how much carbon is the kelp sequestering in this region?" You have access to some of the best researchers in the world who should be the thought leader on how do you quantify what you're doing? And so this has been really powerful because all of our teams get to access this huge network. From an investment standpoint we get to see the landscape developing because the name 1000 Ocean Startups is really the goal. We want to see 1000 Ocean Startups out there, not that original. So, it gives us a great landscape of who's doing what, where things are getting funded, and more importantly for us, where things being underfunded that we think are important from an impact standpoint. That's been probably the best example of where we've been able to be really collaborative.
(09:36):
And then internally we've got representatives from all various teams of the office working together with that organization. It's been really great to see that come together. It's been about three years up and running now and has almost every investor in the ocean sector involved and some of the more academic thought leaders as well.
Jason Jacobs (09:53):
I want to go back to something that you said early on about how one of the goals of being more public is to be a demonstration to get more significant family offices. Thinking about capital in this way, how would you describe the way that you think about capital at Builders Vision, and also, what's the why behind how you came about thinking about it this way to begin with?
James Lindsay (10:17):
I think originally, I don't know what the first "why" was. Lukas was always focused on making the world a more healthy place, even from a very young age. He grew up outdoors, living a great life of skiing and sailing with a very active family and the entire greater Walton family, they've done quite active in every sense, which is great. I think he was just inspired to be aggressive and he stepped in with the Walton Family Foundation quite early in his life and was the Walmart sustainability chair for some time. I'm not sure how long. So, he was learning a lot and I think he really changed his perspective on how do most other high-net-worths keep a capital in various tranches and the endowment fuels, the grant making and that's it type model.
(11:02):
I think the spark just hit when he realized, "I'm running a major platform one day. Do I want to be creative and flexible, or do I want to wait and have the bulk of my impact be later in my life?" And I think that was the big spark of, "I can do more today. Why is every dollar not being used for greater good?" That's been the impetus since I joined. We were not going to be siloed off with any of our forms of capital and we'd be working together, which it's not that grand of a story in reality.
Jason Jacobs (11:29):
And what are some of the biggest differences between the Builders Vision approach and the way that family offices of similar size and stature typically operate, if there is such a thing?
James Lindsay (11:42):
Yeah, every family office is incredibly different. I think our biggest difference is that we are not siloed. The amount of larger offices that have multiple direct investing teams that are scattered around the country and have completely different reporting pathways and leadership, it's phenomenally high. A lot of those also keep their core portfolios in with outside managers, so it's not talking to anything else in the portfolio, the larger portfolio. And the philanthropic programs are just completely arms length from anything else, which is in part just due to conservative self-dealing. It can be hard to invest in things that you provided grant capital for, just for various tax purposes. It can look like you're propping up investments with diluted dollars. You have to be pretty cautious from a kind of an approval framework, or we have to have our attorneys involved in almost everything we do, particularly where I play, just because the self-dealing concern is real.
(12:35):
I think that deters a lot of people, but when you build the right team in the beginning, it makes it a lot easier. And when you're not afraid to spend the time on structuring on the front end of building your various programs and internal funds, they can really help protect you from any of those risks. But I do think that a lot of these other offices just think in the very classic mindset of, I've got a direct team that's going to do whatever they're doing. The grant team's going to stay on their course, and the OCIO that I'm using to keep the billions upon billions of dollars in the market is going to do what they're going to do. And those teams don't work together at all.
Jason Jacobs (13:10):
And what about your personal journey? I read in your background, it looks like early on you spent some time in the oil and gas world. What is it that led you to doing this work to begin with? Where did that come from and how did you end up finding your way into Builders Vision?
James Lindsay (13:24):
Yeah, so I spent about 10 years in oil and gas investing. I'm a geophysicist by background, so in oil and gas, we were the ones who would say, "Drill here, X marks the spot, here's about how big the reservoir is and how much it should be worth." So, a lot of greenfield development. And then I moved into internal M&A. I bought a lot of the oil fields that BP was selling after the big disaster in 2010 when they had to pay off the EPA for all their fines. And I just got the bug for finance and I really liked connecting the technical world with capital markets. I just followed this pursuit of how do I get a little bit closer to the money, because I found that the most interesting.
(13:59):
I spent some time with some startups, sold one pretty successfully after two and a half years. Then I went to business school, ended up with a private equity fund, focused on the lower market of oil and gas, which is almost, it's easy to say, that's where the worst actors play. Older oil fields sometimes still have wooden pipelines even, which is just phenomenal to think about today in 2023. Once I ended up in the lower market and got away from what I would call the more reputable operators that really have a strong safety and environmental program, they really show that this isn't what I wanted to do. Most people that go into geophysics or earth sciences, you think you can be a good steward of the land, and we need resources, we need minerals, we need oil for several decades to come. Sadly, I would rather be making the decision on where we go, how do we operate, versus somebody else, because I think I'm going to be the best steward of the land as I can.
(14:50):
That's not always possible. And when you have to compete with others who will keep their operational costs as low as possible, it's pretty hard for you to be the advocate that you thought you would be. Once I got to about 10 years into my career, I realized I was not as satisfied as I wanted to be, and I started to look. And at the time, if you want to do anything sustainable, the most common plan was I'm going to go into kind of solar greenfield development, or wind, or maybe it was the precursors of hydrogen with the new wave of interest that it's had. And this was very late 2018, getting into 2019. And actually, your podcast was really helpful for me, because I think you were on episode 20 or so right when I had a job offer from a startup in a resource optimization play that was compelling, but I was just like, "Ah, is this right? Do I want to go to the venture side of climate tech? Climate tech 1.0 scared so many people away." I'm like, "What's the landscape really look like out there?"
(15:44):
And this podcast was quite helpful in getting up to speed on who's who, where is the sector going, and is this the right thing to pull my ripcord for, which I did, and I'm super happy about. I came into the office to work on the core portfolio in late 2019, early 2020, right when they were starting to scale up their investment team on the non-S2G side of the house. There was a CIO and two other investors on board, but it was still very early days in what the office was going to look like.
(16:11):
And I came in with the mindset that I was going to do a lot of real asset greenfield type investing. And pretty quickly we realized we could have a lot more impact elsewhere and use more established managers to deploy that capital. When I came in, I actually just volunteered to help out on this new ocean fund that they were launching internally, because the first opportunity was an accelerator fund. And I was like, "Oh, I'm never going to look at an accelerator again. This would be cool." Three or four deals later they're like, "Hey, do you want to do this whole time?" And I was like, "Okay." And it was pretty fun because about a year in they were like, "You're really getting the impact side of oceans a lot faster than everyone thought you would." And I was like, "I have a degree in marine geophysics and a master's in the same subject." Nobody realized what they had done when they put me on that team, so it's worked out quite well.
(16:53):
And as that scaled, that ocean program, we decided to mimic it with an energy vehicle that is the first for climate technology and climate justice portfolio I was describing. And we also launched a food and ag venture fund that's focused on adoption of best practices. So, how can we get farmers to adopt no-till or regenerative practices at large.
Jason Jacobs (17:13):
When you say core fund, is that the S2G work that you're referring to?
James Lindsay (17:18):
No, the core fund is the master portfolio, which is a big taxable portfolio that's got the lion's share of the assets. And most of this is allocated to larger scale fund managers and we're mission aligned where we can be with that portfolio. Some of the other investments are more for tangential learning, so can we see what the best-in-class large scale venture vehicles look like? So, when we hopefully have helped scale up some of these very impact focused small managers, we can be very additive in how they structure things and how do they learn how to be a billion dollar plus vehicle.
Jason Jacobs (17:50):
Got it. So, that's more PE for example?
James Lindsay (17:53):
Yeah, it's a good spread between venture and PE. We don't have as much buyout as we would like in the impact world, so we're trying to look for more there, but most of it's typical growth stage venture on the private side.
Jason Jacobs (18:04):
Got it. And then how does S2G fit in with the work that you're doing on the oceans and the energy side? Where is there overlap and then what is distinct about each of those pursuits?
James Lindsay (18:17):
Yeah, there's a lot of overlap on ocean data. That's a pretty investible space, so everyone's looking at it and we need more of it. Anything we see that's either MRV technology, monitoring, reporting and verification for blue carbon credits, things like that is very attractive. Where we defer is they're generally looking for full market rates of return. I'm blended between impact and returns, but they do go directly hand in hand. To us that means we out of my portfolio will address things that are in smaller markets, whether it's something like fishery technology or it's in a slower moving market like mariculture or seaweed production where you're limited by growth rate of the actual product. So, we're pretty heavily vested across the seaweed supply chain where S2G would be a little bit more focused on just factor growth sectors.
Jason Jacobs (19:08):
If I'm hearing right, S2G operates more like a traditional venture firm that's investing to bring about impact, but financially driven first and foremost they might find something, for example, that's high impact, but that maybe has more risk than they'd be comfortable with from a fairly financial standpoint? Or maybe there's concern about total market size or something like that, but it's a high-impact area and your capital is also seeking return, but maybe more catalytic in nature?
James Lindsay (19:35):
Yes, exactly. It's pretty common. Like I said in the beginning, we'll look at deals together for several weeks until we figure out who's the right home. And now that we've been pretty established in the market, our vehicle has, I met 45 individual investments with five follow-on investments. It's actually sometimes, who's the right home from a internal network, because we have so many partners that can be very, very hands-on and additive with whoever we add. Sometimes there'll be a venture that might make more sense for us, just because we have four of their peers already in the portfolio. And we generally only work with people that are going to be collaborative with each other. So, if you can either be operating in the same region, like U.S. upper East Coast is quite active for us. Maine is a huge, huge kelp producer for North America, so we're very active throughout anything in the Gulf of Maine. If we see a venture there, it's a lot easier for us to grab it and go.
Jason Jacobs (20:27):
Got it. And just from a logistics standpoint, especially for any entrepreneurs out there who might be trying to figure out if either S2G or Builders Vision might be a good fit, what are the criteria in terms of check size, are you leading, stage of investment, and any criteria that makes something a good fit? And I'll ask that about your areas of focus, James. And to the extent you can also answer on behalf of S2G, that's great. And if you're not close enough, that's fine too.
James Lindsay (20:53):
Yeah, so S2G, they'll look at almost anything, all shapes and sizes, and that's the benefit of being associated with the family office. Their mandate is meant to be broad. On our side, we're typically C to A, we've gone off to a series B out of this portfolio for oceans. We look at first time fund managers as well, which is our primary focus right now. If you are interested in launching some Ocean venture fund, let us know. We will commit pretty early on before you're close to a first close. We're trying to help get people out there faster. With the fund world, we're typically two to $5 million for commitments. And on the direct investment side, our checks have been 500 to 1 million. We won't lead in most scenarios. We try not to be overly hands-on. We're a pretty small team for the size of the portfolio.
(21:41):
That being said, we will, we prefer to co-lead if we really have to, but we just don't have the time necessarily to be picking up the phone and calling 40, 50 investors to help get everyone up to speed. Most leads end up doing in the end. S2G, they'll write bigger checks than us and they will more aggressively follow on like most market rate venture funds. So, they'll be investing single digit millions on the entry most of the time and will scale with companies as they grow in most scenarios. On the energy side of things, that's a little different. In that portfolio I'm investing with a fund to fund style, as well as directly investing. So, similar amount of if you're a fund manager looking to enter space, I'll take a look at you. But on the direct investment side, I can provide project financing with much bigger checks, kind of five to $10 million is the range we've been targeting so far.
(22:33):
And the goal here is to be incredibly catalytic. When you're trying to build your first of a kind facility, you don't have to either depend solely on grant capital, which might take you two years to lock down, and you don't really want to pull down more equity for this, because venture dollars can be quite expensive. We're trying to be in the middle of what you could get if you were going to focus on more philanthropic sources and what you could get if you're going to be taking down full market rate capital, whether that's venture debt or classic project financing, it's quite expensive. So, we're trying to be flexible and create unique structures that work for everybody. We actually have our first term sheet out being negotiated right now for a project financing for first for time facility, which is super exciting.
(23:12):
And we won't be too specific in what the terms are. One of the ways we try to be patient and flexible is this DOE grant, partially funded facility, so we won't be taking the interest on our investment until they reach first production, which will save them two years of developing accrued interest, which will really help them hopefully avoid being overly burdened by a debt-like instrument. But yeah, on the energy side, we'll invest all over the spectrum as well. Typically, I would like to be making small checks with pre-seed and seed stage companies that have a need for a first of a kind type pilot facility down the line, just to get to know them. I mean, these can be big investments and they're with very challenging engineering issues ahead of them. They might require large teams.
(23:54):
And I make the joke, a lot of these are 29-year-old PhDs straight out of their postdoc with a brilliant idea. And they're incredibly smart individuals, but they've never managed a team, they've never managed the projects. So, they've got their own learning to go through just on a how do you function in a business. And it feels right that we get to know them for a year or two before we make a huge commitment to them, because there's a lot of learning that has to go on there.
Jason Jacobs (24:18):
And then on the fund side, for the fund managers out there, what's the profile that makes a good fit on the core fund side? And is there any gray area or is there a big gap between a prospect for the core fund and the type of prospect that you might look for in the oceans or energy world?
James Lindsay (24:35):
The core fund, the biggest gating factor is normally sizing. That fund won't look at most vehicles that are under a 100 million AUM, just because it's too hard for them to allocate with that portfolio. Those are typically going towards the larger groups, 500 plus million AUM. But again, there's often exclusions and we do special things for things that make a lot of sense, which is a fancy way of reminding that we're flexible. Most of the time we have a few other tools that we use. When we're often unsure where to route things we have a donor-advised fund vehicle that we recommend a lot of managers through, especially very small first-time fund managers like sub 25 million. It's a great way to let them get a track record going and then get out there with a bigger fund down the line, which is exactly what we want to see.
(25:20):
But most of the time if somebody's raising a couple $100 million vehicle, I'm not going to bother taking a look at them out of the thematic portfolios, just because it's hard to justify that we're being catalytic. I love working with them, there's great deal flow sharing opportunities, but there's not much of a need for me to use this capital to support them, which doesn't mean they're not very impactful and worthy. It's just I'm here to help be catalytic more than just scale the sector.
Jason Jacobs (25:46):
And so in your world, the investing that you're doing, it sounds like it's a mix of direct and fund investing. Is it all out of the same pool of capital, and is it structured like closed end fund or is it balance sheet investing? What's the actual mechanics of it?
James Lindsay (26:01):
It's essentially balance sheet investing. Everything rolls up to our principles, the family in some way or form. Our endowment is a formal endowment, so it is governed by the rules and regulations that fiduciary responsibility comes with on that side of the house. And the grant team is primarily using traditional grant dollars coming from the endowment, but everything else really just rolls straight to the principles. We have some formal structures for some of the funds more on the S2G side, but for the most of it it's all inevitably rolling straight up.
Jason Jacobs (26:33):
And how do you think about and measure financial performance and what expectations do you have there? And then same question, on the impact side, just given the diverse areas that you play in, how do you think about measurement and tracking, and is it uniform or are there kind of sub approaches that are distinct?
James Lindsay (26:51):
Yeah, on the financial side, we're of course looking for returns, but we realize that particularly with the two portfolios that I've been talking about on the energy and ocean side, we're targeting return on capital. We realize we're entering into some risky things, which we're happy to take that risk. We do underwrite most opportunities with a pathway to them having market rates of return, depending on what type of investment we're making. Venture we're talking 3, 4, 5 x multiple pathways. With the fund managers we are hoping for 20 plus percent IRRs. We realized that we're going to have a very split portfolio. We're going to have some great performance out of some, and we are seeing that already. And some are not going to do as is life when you're working with startup, early stage startups and first time managers.
(27:32):
We're already being pretty surprised with some of the results. Some of the groups that we thought would be more niche focused have actually got the best returns and actually have some actually have distributions already, which in three and a half years is surprising, so we're very excited with how things have been shaping up. From the financial side, it is catalytic for what my side of the house is doing, but we are still hoping to make some money on that. And then on the impact side, because we are more focused on the impact necessarily than the returns, we have a pretty strong impact measurement team. Our IMM team has been involved with us for the past two and a half, three years. The first two years were really focused on how do we underwrite impact on the front end of investment, which can be quite hard. We've developed about a 35-question matrix that assesses a partner's commitment to impact, which to be kind of who, what, when, or why.
(28:23):
And this can be everything from like they're addressing a frontier challenge in applied science in the sector, which is often pretty hard to fundraise for, to they're addressing something that's really underserved, like microplastics reduction for ocean health. So, we've been using that on the front end and it's actually been a really helpful tool. We'll compare a rough financial expectation, which is kind of a high level, this addressing a huge market and it's a really strong unity economic opportunity. With high growth potential, we'll get a much higher score than something that's smaller and a little bit more nichy. But this nice XY really helps us figure out, where should this sit? Is this something that my ocean impact vehicle should focus on, or should we really push harder for it to be something that the grant team supports with some other type of capital?
(29:09):
And we do this for our funds, we do this with our direct investments, and it's created a pretty great database for us now when we are looking at opportunities coming through the door. And we actually went through a group called Impact Frontiers, which is education focus group in the impact arena. They really just want to help teach others and help share knowledge on what impact measurement and reporting should and could look like. Really great group, if anyone's looking for more information on them or thinking about their own impact measurement framework. Check them out, I can only sing their praises. And then once we've invested, we do annual impact reporting. We're starting at this year for our first full report, which we're all really excited about. We had about 85% response rates across the portfolios, so it's going to be really fun to see what we get.
(29:52):
A lot of our investment is still pretty early, kind of year two or three. So, the impact will be not as strong yet. Just with the normal J curve of startups takes them a few years to show their impact through sales and activity. But it's a major focus point for us. When we start discussing our portfolio and our various monthly reviews internally, my questions for the team are primarily on the impact. However, that generally does go with their business. Everything we're doing be tied to impact from a, what does it mean from a sales standpoint is a direct correlation. It's not just a, they're doing a better job operating, their business model is not direct impact. We're generally not going to be investing in them. So, it is kind of a synonymous approach. Our impact KPIs should be very close to what a business KPI is from is what we're looking at.
(30:38):
But yeah, it's a big lift for us. If you ask the associates on my team, they'd probably say 30, 40% of their time is focused on maximizing impact across the portfolio. We spend most of our time when we're engaging with these partners thinking about how can we help them get ahead in the impact side of their business more than just their commercial side. And it's going to be things like, "Well, how can we help you get a better lifecycle assessment of what you're doing? We know these great researchers over here that have done a great job for us elsewhere. Let's start the conversation. Or this grant program that's funding research at Scripps could be a really helpful tool for you to get involved with, because they're the academic leaders on your subset." It's priority number one for us, so we take it quite seriously. And we're hopefully going to be quite public with what we find from our impact learning standpoint.
Yin Lu (31:25):
Hey, everyone, I'm Yin, a partner at MCJ Collective. Here to take a quick minute to tell you about our MCJ membership community, which is born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done.
(31:57):
Many early stage investments have been made, as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.
Jason Jacobs (32:23):
And I'll ask you this next question distinctly both for the oceans and then the same question on the energy side, but is it thesis-driven where you do the work upfront and uncover key areas that you want to find investments and deploy capital in? Or is it more opportunistic? And either way, what are the criteria beyond additionality that gets you most excited about deploying capital in the space? I'll ask that both about oceans and then again about the energy side, since I understand that as you said, they're distinct strategies.
James Lindsay (32:56):
Yeah, so oceans started as very opportunistic. There were almost no managers. Like I said, there was one family office that raised an external capital to get out there. So, the first few years it was very just who's coming to market and who have we heard about and a singular review of them for their own merits. Now that we've deployed a lot of capital and made a lot of investments, except we're at 45, we are being much more research-driven. So, for oceans, we're really trying to target underserved geographies, which to us is the global south. When you think about the scale of plastics problems, the scale of fishing activities and aquaculture production, almost all the capital should theoretically be going into Southeast Asia, whether that's Singapore, Australia, Hong Kong region. There's a tremendous amount of industrial activity there. And we only have one real manager focused, well, based in Singapore with a lot of activity from India to the southeast who's doing great work, but we need a lot more managers out there.
(33:54):
One of our themes for the next few years is going to be expanding our presence there with partners, hopefully start with more fund managers and then begin to invest directly more after we've built a bit of a network. And then from a themes outside of geographies area focus, we are spending a lot of time thinking about ocean carbon dioxide removal. It's a huge topic right now and we hope to be a thought leader in the sector, because we want to make sure it's done right. A lot of the potential pathways for carbon dioxide removal in the ocean can involve things that are almost marine dumping. So, one of the concepts, for example, is crushing up iron and throwing it out there in the ocean so it acts like a micronutrient just like it does for you and I. And this would accelerate microalgae, which is great when you think about that's carbon being sequestered and it's eventually going to sink to the bottom of the ocean where it's stored for tens of thousands of years naturally.
(34:48):
But we don't know what the second order effects are of this. Is the microalgae going to be robbing from larger organisms from an energy standpoint and taking away valuable resources? So, will we create a net positive impact? We don't know. We want to be really careful going into this entire sector and make sure we're not getting into the world of geoengineering, which we really want to make sure we're thoughtful and diligent in everything we're doing. We're going to be a lot more aggressive within that sector, but a lot more research-driven in how we go about finding solutions and teams.
(35:21):
The energy side, it's a little bit more thesis-driven, but because I'm targeting hard to abate sectors, it's an easy thesis. You can look at the carbon emissions graphs by sector and really figure out, it doesn't take a rocket scientist to know we have to be talking about steel, arms, cement, ammonia, [inaudible 00:35:37], the big, big heavy hitters in the manufacturing worlds.
(35:42):
And then of course, the built environment, which is 40% of carbon. Between embodied carbon and operational carbon it's easy to start prioritizing where are we going to look? But because I'm very focused on hard tech with those, it's not easy to find your sourcing pipelines, because there's accelerators that really focus on these areas. There's great institutions, MIT and the engine. It's really to just watch what they're working on and keep an eye on their teams to build a great pipeline. And then on the climate justice side, that's been a little bit more reactive. We've been trying to figure out ways how we can support the green bank initiatives. And now that the greenhouse gas reduction funds starting to clear up their guidance, we're hoping to find some ways to help prove some great new innovative models. But that's a little bit more reactive. There's so many smaller operations that are hard to find and the type of capital I need is a little bit different, so there's a lot of searching there.
Jason Jacobs (36:33):
Where does the first of a kind work and the loans that you mentioned fit into all of this, and it'd be great also just to get your perspective on the nature of the gap there as you see it, and the types of solutions that could be most impactful, both that you're working on, or even ones that you think would be impactful that you're not, since, as you said, you're a small team and can only do so much?
James Lindsay (36:59):
Yeah, so the goal of that side of the portfolio is to just accelerate adoption and deployment of these new technologies. If you're building, your N equals one plant, good luck fundraising for it. I mean, it's super hard out there. There's some great grant pathways, there's some great loan pathways now, and the DOE's trying to do a great, great job, but it takes a long time to get through the loan approval process, and the grant approval process is similar. And it needs to be that way, which I hate to say, we can't just try to push those outfits to move faster. They've got to be careful and diligent and make sure they really understand what they're doing. So, we're really trying to find ways to just get you out there today, instead of in two years, to prove you do not have to have commercial plants in your design for us to get involved.
(37:42):
And so with that program, like I said, it's kind of the easier targets, what's the hardest to abate sectors. So, I'm deep diving into cement companies right now, which I think are going to be one of the bigger areas for impacts. But with that, I can do anything that's kind of your first plant, second plant, third plant even, if it's still you're not proven economically. The goal of this is to be a lower cost of capital for you. That's more catalytic. We're not trying to ensure offtake down the line in 10 years when you're hopefully changing the hydrogen supply chain because you've been so successful. We're hopefully just working with you for five or six years while you've proven yourself on a pre-commercial scale.
(38:21):
And within this sector it's been interesting over the past year, and I mean that there are a lot of proven technologies that are looking for scale-up capital for their first big facility. And hydrogen's a really good example of this. There are many pre-permit type projects going on that the second they get to commissioned point, they'll be able to get two, $300 million in debt from market rate investors very quickly. But they need a lot of help getting there. And that's not what we're doing yet. We might do more of that in the future. We're much more focused on the frontier technology side of this, so it has to be a new pathway. And we're looking for things that aren't just extending the life of existing industry. So, we're not doing, let's make a better point source capture system that we can attach to natural gas power plants, or in injecting CO2 to cure cement as a way of sequestering more carbon.
(39:16):
We're looking at true, fundamental pathway changes for how emissions are created in these sectors and how can we prevent that. Ammonia, a really high temperature and pressure reaction takes tremendous amount of energies. How can we drop that temperature and pressure significantly, not just a little bit of margin improvement, but how can it truly change the reactions?
Jason Jacobs (39:35):
Got it. When you look at this gap, I mean, it's great that that one and hopefully many more ultrahigh net worth families are looking to deploy at least a portion of their capital in this catalytic way. I don't know if you would use these words, but it feels almost philanthropic. And I guess my question is, is that the best chance we have to address this gap at scale? Or are there ways that selfish, greedy capital that maybe doesn't look at it with an impact lens might see this as an attractive space to play in?
James Lindsay (40:05):
I think there's lots of ways that full market rate investors can be entering the space, and we're starting to see that. And I think that the venture community has learned, not everything needs to be a typical price round with a series name. So, we're seeing people think about more creative structuring, which are closer project financing, and they're throwing in things that will guarantee offtake in the future if they're more of a strategic investor, or allow them to be incredibly super pirana type investors for the fifth, sixth, seventh, eighth plant because they're really thinking about investments on the longer term, which is great, and we need to see more and more of that. But there's not that many people thinking about it like that yet. There's a bit of a disconnect between the classic venture players and the groups that will think about this from a project standpoint.
(40:53):
What's going to be really interesting is what happens with the oil and gas investors as they're getting into the energy transition. A lot of the bigger firms, kind of the typical Houston big oil gas funds are launching transition teams, which is great, because they understand how to scale projects better than most in this world. Hopefully if their intentions are true, which some of them seem like they are, great leader in the sector, but it's going to be in our to see how much risk they're really willing to take. I do think there's going to be long-term need for players like us that are in the catalytic bucket. Hopefully it won't be essential for the sector to develop programs like the DOE, DOD also is doing a lot of work in the area. Won't be enough, but really I just think venture capitals need to realize, not everything can be a B2B SaaS type investment. Those marginal improvements are great. We need them, don't get me wrong. Some of those tools are very helpful, but they're not going to create the fundamental change that we really need.
Jason Jacobs (41:47):
And when you talk about being a demonstration for other families, what are you seeing out there as it relates to other family offices of a similar size and stature? Do you feel like you're on an island and that you're doing stuff and that most of the ultra-high net worth family office world is still sitting on their hands in this area? Has it been changing at all over time, and what do you expect will happen looking forward?
James Lindsay (42:13):
We have our usual suspects that we work with all the time. The Grantham team is a great thought partner and we've in many things, the Schmidt families likewise, and the Gates pool capitals, whether it's breakthrough or Gates Ventures, have been very, very aligned in how we think about things. It seems like the families that are interested in sustainability are here thinking about things in the same way. What's been interesting is the less focused families are beginning to perk up. If we go to a conference and we start talking about what we've done in seaweed, you'll be very surprised who pulls you aside after and starts asking you some very good questions and then ends up circling in on a similar investment down the line.
(42:57):
They're not turning these into bigger programs yet, like launching dedicated vehicles or anything like that. But they're starting to get interested and they're tasking their deal teams to think about it a little bit more, which is great. And it is one of our bigger goals. How can we get to more of these more mainstream asset management convenings and start to tell our story? Because in the impact world we're pretty plugged in and we know most of who's going to be doing what. What's really interesting also is the bigger OCIO offices are launching bigger and bigger sustainability efforts and try to educate the clients more and more impact. Going to be, I would say, the most powerful change we see.
(43:34):
And then the other interesting trend I would say is we're seeing a lot more of these syndicates coming together, which can be pretty helpful for the sector. There's four or five of them, whether it's gin, tonic, Creo, all of these groups are growing quickly. It's hard to tell what these families were doing before they joined, were they as focused on impact and just didn't necessarily call it impact. They maybe just thought it was like, "Oh, that's a cool project. I'm going to go do it." But getting people coming together talking about what they're doing is just going to accelerate this transition so much faster. We need more, of course. But it's been really powerful to see.
Jason Jacobs (44:08):
I mean, it's great that you have some close collaborators, although at least from the ones you named, you can count them on one hand, and presumably there's a lot of other incredibly wealthy, multi-generational families that are out there. What are the biggest barriers? Obviously, every family's different, but if you had to look in the aggregate, what are the biggest barriers that you think is holding back more of that capital being deployed into these areas?
James Lindsay (44:31):
That's a great question. I don't have a perfect answer. From afar, and I'm pretty lucky, I've only worked in a single-family office and then for privately raised vehicles before. So, I've never worked in a multi-family or a multi-generational office. I think generational divides are a big barrier. It seems like most of the younger generations in the families that we know are very focused on impact, and they're trying to push the grandparents to think more and more about it, which is good, but it creates a lot of friction. And there's still the mindset of, "Well, we're deploying money through grants. Why do we need to think about investment dollars going out the door into this as well?" And they're not necessarily realizing that, "Yeah, there's a bit more risk sometimes in what we're doing, but the biggest return drivers of the next 20, 30, 40, 50 years will be from things in the transition."
(45:21):
You can't pretend that you're being a fiduciary and saying no to impact. You're over the long term, not honoring your fiduciary duty, I would say. And people don't realize what impact can actually mean. I think that there's this notion of it's got to be investing in a fifth generation fusion technology that's going to take a 100 years to commercialize. It's cool. We need some of that. It's fun stuff, but that's not necessarily where you're going to have a lot of impact right out the door. I just got a deal approved for a oyster and seaweed farming banking system. It's not going to be a major company. It won't be worth 10, $50 billion, but it's going to deploy a lot of capital out the door and get fishermen thinking about sustainable oyster farming or seaweed development, which is exactly what we need more of in the ocean ecosystem.
Jason Jacobs (46:06):
And if you look directionally from a societal standpoint, I'll ask the same question as I did about the family offices, but more around just accelerating the transition, what's holding it back and how do we go faster? And maybe along the same lines, is it about adapting our existing system, or do we need a new system? And is it realistic if we do need a new system that we could get one, even if it's the only way?
James Lindsay (46:33):
I think people have been too reluctant to invest in any type of hard tech. It just has a slower growth curve, which is to be expected. I think that's been a major bottleneck towards change. Like I mentioned, some B2B SaaS stuff in this energy transition is great. It gets a lot of private capital behind it, but that's not going to be what saves us from being in trouble in a 100 years when we've seen real impacts of climate change. I also think people are not addressing the whole supply chain with enough diligence. It feels like the last six months people have really started talking about the materials involved in what we're doing, copper, cobalt, lithium being the front and center materials. If we don't start thinking about better sourcing of these materials, we're going to have some real trouble in the future.
(47:16):
The amount of copper nickel that goes into even just conventional power generation is incredibly high, and we're not turning on new minds and we're not doing it in a sustainable way. So, there's just a reluctance to touch hard tech, and there's a reluctance to touch any primary production or extraction of resources that are needed for this. But yeah, I think just getting people more aware that there are bigger picture problems to be solved than just getting out there and getting optimization software in place. HVAC controls are a big area for savings in a building, but maybe you should have been thinking about better installation materials, instead of just making a better software system.
Jason Jacobs (47:53):
And outside of technology innovation, how do you think about things like suburban sprawl and the future of cities and people's consumption patterns? And I think I'm especially interested to ask you this question, given that you work for one of the Walton family offices who, of course was a pioneer in an institution that has served so much of the existing system in terms of the suburban way of life, and I grew up in the suburbs, and I love the suburbs, by the way. So, I don't know what the right answer is. I'm just curious if it's something that you've thought about?
James Lindsay (48:22):
Yes and no. I mean, because I'll invest in a built environment. I'm not confident enough to change how I would look at a sector based on no one's going to live in Downtown Chicago anymore now that we all go to the office twice a week or whatever we do in this hybrid world, we're not necessarily trying to change behavior from a, let's get everyone not to drive anywhere, or go on vacation and drive cross country or anything like that. So, I don't have a great answer there. I feel like we're actually moving away from things like mass transit right now because of COVID and a lot of that. I lived in the Bay Area and the BART system I didn't ride very much before COVID. I didn't live out here. I'd only been on it once or twice, but it's a completely different environment now, and it's deterred everyone I know from taking a bus or a train, which is scary to think about what that means, especially for a city of all that congestion like San Francisco.
(49:16):
So, it's a little scary to think about, just making these investments when we don't know what the world's going to look like, but we'll say things like microgrid improvements when we start to see these new population centers matter a lot to me, but transit-wise not touching much. Built environment, there's going to be a lot of retrofits, I think. And I know the city of Chicago was worried about this, some of the bigger real estate players have a lot of fairly new office space that's not being used, and they're trying to figure out really hard, how do we utilize the space?
(49:51):
There was one group in the inner loop of Chicago that was really trying to push for an indoor agriculture college to be scaled up there, because why not? The space was there, it had good access to water. I think had solar on the roof, so pretty good power generation on site. And they were trying to work with a local college, I'm not sure which one, on how do we do a workforce development scheme here with primary production that will hopefully prove that you can have a better food and ag supply chain within a city while training the workforce of tomorrow what this controlled environment agriculture need to look like from a skills standpoint?
(50:29):
That was something that was pretty interesting. It didn't get much of a leg behind it, just I think due to zoning in Chicago. And then the election came, so know what they're doing. But it was pretty interesting to watch and I hope we see more and more creative solutions like that coming in, because we're going to see some major changes. And Chicago's going to be a great example of that, just like Bay is with the mass exodus Downtown has seen.
Jason Jacobs (50:50):
Well, we've been talking almost an hour, and surprisingly the word policy has not come up once, so I can't let you escape without asking you. How important do you think policy is in the transition, and relatively, how active are you at Builders Vision, if at all, on the policy side?
James Lindsay (51:08):
Yeah, so we don't directly lobby. Just with our rapid change over the past few years we haven't built a big team there yet. We would like to be involved in the conversation, but we're reluctant to be too aggressive, just because when you're actively investing in what you're trying to change policy for, it can be tricky. I'm not an expert in policy at all, so I won't pretend I know what I'm actually talking about here. But I mean, it's essential what the RA bill did is going to be phenomenal for the sector and what the Greenhouse Gas Reduction Fund hopefully will be able to deploy that 27 billion is going to be incredibly catalytic for the sector.
(51:46):
But I think outside of the specific programs like the DOE, they're doing a great job and need more capital and more resources just to go faster. I think we need better line of sight to the longer term policies. And this can be as simple as, what is a federal level carbon policy going to look like over the long term? And I think 45Q has become a pretty good tool. I was actually using that in oil and gas for CO2 enhanced recovery, and we had no idea how to navigate that entire incentive system for first two years it was out there, because it was just not clear whatsoever. So, no one would invest in anything that depended on it. They've cleaned that up a lot, so I think everyone's pretty comfortable with what it looks like today, but we just need more guidance on what federal level policy is going to look like.
(52:29):
And then more specifically, I think in a region by region basis, every power production region needs to have a big policy overhaul. How do we think about interconnection in Texas versus New York? Huge, huge difference. And that really can deter developers from entering the arena. And when you start throwing in battery storage and what that's going to do to our grids, all for the right good reasons, it's going to be a mess for regulators to really manage and not have many issues coming up. Like the Texas blackouts when they had that big ice storm two years ago, or last year, I don't remember when it was. Yeah, I think that more utility level, what are the regulations going to look like? What is the federal government going to say matters is going to be essential.
(53:15):
And then I think the last point there is, looking at the ocean side of things, there's almost no policy strategy right now. There's no leader for what the Ocean's Climate solutions should look like. NOAA's doing a great job of getting in the conversation and they are the defacto organization responsible for our oceans, but not necessarily how oceans apply to climate. Just things like how do we get more sustainable aquaculture permits out there is a NOAA level issue. And it's a really challenging thing to implement. Getting permits in these high value coastal areas is hard and it will continue to be, so we're going to need a little bit more of a national voice there, I think, if we want to see things like seaweed farming, scaling up in North America.
(54:00):
I mean, Alaska could be a mecca for seaweed production. They've got the skilled labor, fishermen know what they're doing when it comes to planting seaweed. They've got the best waters in North America to be growing, but it's a policy nightmare to get permits out there and give them water and their legislators are not always supportive of it just due to various industry interest.
Jason Jacobs (54:21):
Great. Well, maybe my last question, James, is just, if you could wave your magic wand and change one thing that would most accelerate the work that you're doing at Builders Vision, and of course, accelerate the transition that you're working to bring about, what would you change and how would you change it?
James Lindsay (54:35):
I think the biggest thing is, like I've been saying, people should be flipping the switch and investing in harder tech investments. It doesn't mean you have to be like what we're doing and investing in cement and steel and the big, big, big industry problems, but you can't be afraid to get into things like a new heat pump system. And a lot of these businesses will have a SaaS-type component, a hard tech component so they can get to, we'll install the heat pump and optimize your building, but we're also going to manage the building from an energy service standpoint for 10 years. So you get really nice cash flows from that side of it, as well as hopefully a unit positive sale on the heat pump side of it or whatever hardware you're putting in.
(55:12):
And that area is just so underserved and it's going to be the most change that we can have. I mean, you can't optimize your gas guzzling car that much with technology, which is I think the mindset of the law of the investment is seeking, let's optimize the solar field. Well, it's already built. We could be doing so much more with that money. My magic wand would be hopefully the investment community starts to follow suit on that front.
Jason Jacobs (55:36):
Great. And anything I didn't ask that I should have, or any parting words?
James Lindsay (55:40):
No, just thank you so much for having me. Also, just a plug, our team's hiring right now, so we're looking for some associates and up to a VP. If you're interested in energy, ocean, and food and ag, feel free to look us up. We're growing and we need a lot of help and I think it's one of the most fun jobs anyone could have, because we get to work with some of the best managers out there in the world. We get to directly invest, we get to provide grant capital, and you get to see it from all angles. If you are early in your career and you're passionate about climate, it's I would say the best learning opportunity you could have in front of you. And you also get to meet great people like Jason. So, thanks again for having me.
Jason Jacobs (56:15):
Thanks again for joining us on the My Climate Journey podcast.
Cody Simms (56:20):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity.
Jason Jacobs (56:29):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter, @mcjpod.
Yin Lu (56:42):
For weekly climate op-eds, jobs, community events, and investment announcements from our MCJ Venture Funds, be sure to subscribe to our newsletter on our website.
Cody Simms (56:51):
Thanks, and see you next episode.
